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**U.S.SECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

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**FORM10-Q**

**(MarkOne)**

| ý                                               | **Quarterly report  pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**  |
|------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                 |                                                                                          |
| **For  the quarterly period ended June 29, 2001 or** |
|                                                 |
| o                                                    | **Transition report pursuant  to Section 13 or 15(d) of the Securities Exchange Act of 1934** |

**For the period from __________ to __________/**

**Commission file number: 000-30575**

 

**AVOCENT CORPORATION**(Exact Name of Registrant as Specified inIts Charter)

 
| **Delaware**                                                     | **91-2032368**                                             |   |
|------------------------------------------------------------------|------------------------------------------------------------|--------|
| ****                                                             | ****                                                       |   |
| (State or Other  Jurisdiction of  Incorporation or Organization) | (I.R.S. Employer  Identification Number)                   |   |
|                                                             |                                                       |   |
| **4991  Corporate Drive  Huntsville, Alabama**                   | **35805**                                                  |   |
| ****                                                             | ****                                                       |   |
| (Address of Principal  Executive Offices)                        | (Zip Code)                                                 |   |
|                                                             |                                                       |   |
|                                                             | **256-430-4000**                                           |
|                                                             | (Registrant’s  Telephone Number, Including Area Code) |
|                                                                  |                                                            |        |  |

             Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934, asamended, during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days. ý Yes  oNo

             Asof August 6, 2001, the number of outstanding shares of the Registrant’s CommonStock was 44,550,788.

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**AVOCENT CORPORATIONFORM 10-QJUNE 29, 2001**

**INDEX**

 

|       |                   |                                                                                                                             |   |
|------------|------------------------|----------------------------------------------------------------------------------------------------------------------------------|--------|
| Part I     | Financial  Information |                                                                                                                             |   |
|       |                   |                                                                                                                             |   |
|       | Item 1.                | Financial Statements                                                                                                             |   |
|       |                   |                                                                                                                             |   |
|       |                   | Condensed  Consolidated Income Statements (unaudited) for the Three and Six Months Ended  June 29, 2001 and June 30, 2000        |   |
|       |                   | Condensed  Consolidated Balance Sheets at June 29, 2001 (unaudited) and December 31,  2000                                       |   |
|       |                   | Condensed  Consolidated Statements of Cash Flows (unaudited) for the Three and Six  Months Ended June 29, 2001 and June 30, 2000 |   |
|       |                   | Notes  to Condensed Consolidated Financial Statements (unaudited)                                                                |   |
|       |                   |                                                                                                                             |   |
|       | Item  2.               | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                      |   |
|       |                   |                                                                                                                             |   |
|       | Item  3.               | Quantitative  and Qualitative Disclosures about Market Risks                                                                     |   |
|       |                   |                                                                                                                             |   |
| Part II    | Other Information      |                                                                                                                             |   |
|       |                   |                                                                                                                             |   |
|       | Item 1.                | Legal Proceedings                                                                                                                |   |
|       | Item  4.               | Submission  of Matters to a Vote of Security Holders                                                                             |   |
|       | Item 6.                | Exhibits  and Reports on Form 8-K                                                                                                |   |
|       |                   |                                                                                                                             |   |
| Signatures |                   |

**PART I –FINANCIAL INFORMATION**

Item 1.  Financial Statements

 

**AVOCENT CORPORATION**

**CONDENSED CONSOLIDATED INCOME STATEMENTS**

(In thousands, exceptper share data)

 

|                                                                      | **For  the three months ended** |       |                | **For  the six months ended** |       |
|---------------------------------------------------------------------------|---------------------------------|------------|---------------------|-------------------------------|------------|
|                                                                      | **June  29,  2001**             |       | **June  30,  2000** |                          |       | **June  29,  2001** |   | **June  30,  2000** |   |
|                                                                      | ****                            | ** ** |                | ****                          | ** ** |
|                                                                      | *(unaudited)*                   |       | *(unaudited)*       |                          |       | *(unaudited)* |   | *(unaudited)* | * * |
|                                                                      |                            |       |                |                          |       |   |   |   |   |
| Net sales                                                                 | $                               | 65,079     |                | $                             | 36,447     |   |   | $ | 138,254 |   | $ | 64,691 |   |
| Cost of sales                                                             | 46,008                          |       | 19,648              |                          |       | 83,349 |   | 34,239 |   |
|                                                                      |                                 |       |                |                               |       |
|                                                                      | Gross profit                    | 19,071     |                | 16,799                        |       |   | 54,905 |   | 30,452 |   |
|                                                                      |                                 |       |                |                               |       |
|                                                                      |                            |       |                |                          |       |   |   |   |   |
| Research and  development expenses                                        | 6,042                           |       | 1,672               |                          |       | 11,735 |   | 3,123 |   |
| In-process research  and development expenses and other acquisition costs | —                          |       | —              |                          |       | 4,570 |   | — |   |
| Selling, general and  administrative expenses                             | 20,613                          |       | 4,779               |                          |       | 40,254 |   | 8,836 |   |
| Amortization of  intangible assets                                        | 33,377                          |       | —              |                          |       | 66,437 |   | — |   |
|                                                                      |                                 |       |                |                               |       |
|                                                                      | Total operating  expenses       | 60,032     |                | 6,451                         |       |   | 122,996 |   | 11,959 |   |
|                                                                      |                            |            |                |                          |            |   |
|                                                                      |                            |       |                |                          |       |   |   |   |   |
| Income (loss) from  operations                                            | (40,961                         | )          | 10,348              |                          |       | (68,091 | ) | 18,493 |   |
| Interest income                                                           | 1,509                           |       | 1,072               |                          |       | 2,810 |   | 1,989 |   |
|                                                                      |                                 |       |                |                               |       |
|                                                                      |                            |       |                |                          |       |   |   |   |   |
| Income (loss) before  income taxes                                        | (39,452                         | )          | 11,420              |                          |       | (65,281 | ) | 20,482 |   |
| Provision for (benefit  from) income taxes                                | (2,597                          | )          | 3,880               |                          |       | (304 | ) | 6,941 |   |
|                                                                      |                                 |       |                |                               |       |
|                                                                      |                            |       |                |                          |       |   |   |   |   |
| Net income (loss)                                                         | $                               | (36,855    | )                   | $                             | 7,540      |   |   | $ | (64,977 | ) | $ | 13,541 |   |
|                                                                      |                                 |       |                |                               |       |
|                                                                      |                            |       |                |                          |       |   |   |   |   |
| Earnings (loss) per  share:                                               |                            |       |                |                          |       |   |   |   |   |
|                                                                      | Basic                           | $          | (0.83               | )                             | $          | 0.33 |   |   | $ | (1.47 | ) | $ | 0.59 |   |
|                                                                      |                            |            |                |                          |            |   |
|                                                                      | Diluted                         | $          | (0.83               | )                             | $          | 0.31 |   |   | $ | (1.47 | ) | $ | 0.55 |   |
|                                                                      |                                 |       |                |                               |       |
| Weighted average  shares used in computing earnings per share:            |                            |       |                |                          |       |   |   |   |   |
|                                                                      | Basic                           | 44,307     |                | 23,180                        |       |   | 44,147 |   | 23,076 |   |
|                                                                      |                            |            |                |                          |            |   |  |   |
|                                                                      | Diluted                         | 44,307     |                | 24,485                        |       |   | 44,147 |   | 24,490 |   |
|                                                                      |                            |            |                |                          |            |   |

 

Seenotes accompanying these condensed consolidated financial statements.

 

**AVOCENT CORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(In thousands)

** **

|                                      | **June  29,****2001**                                                                                                                                                       |     | **December  31,****2000** |     |
|-------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|---------------------------|----------|
|                                      | ****                                                                                                                                                                        |     | ****                      |     |
|                                      | *(unaudited)*                                                                                                                                                               | * * |                      | * * |
| **ASSETS**                                |                                                                                                                                                                        |     |                      |     |
|                                      | Current assets:                                                                                                                                                             |     |                      |     |   |
|                                      | Cash and cash  equivalents                                                                                                                                                  | $        | 58,756                    |     | $ | 44,106 |   |
|                                      | Investments maturing  within one year                                                                                                                                       | 75,638   |                      | 77,372   |   |
|                                      | Accounts receivable,  net                                                                                                                                                   | 54,498   |                      | 63,532   |   |
|                                      | Income taxes  receivable                                                                                                                                                    | 1,823    |                      | 4,487    |   |
|                                      | Other receivables                                                                                                                                                           | —   |                      | 10,800   |   |
|                                      | Inventories, net                                                                                                                                                            | 37,943   |                      | 34,458   |   |
|                                      | Other current assets                                                                                                                                                        | 2,885    |                      | 3,029    |   |
|                                      | Deferred tax assets                                                                                                                                                         | 7,372    |                      | 5,560    |   |
|                                      |                                                                                                                                                                        |          |                      |          |   |
|                                      | Total current assets                                                                                                                                                        | 238,915  |                      | 243,344  |   |
|                                      |                                                                                                                                                                             |     |                           |     |
| Investments                               | 1,570                                                                                                                                                                       |     | 3,891                     |     |
| Property held for  lease, net             | 2,004                                                                                                                                                                       |     | 2,102                     |     |
| Property and  equipment, net              | 23,033                                                                                                                                                                      |     | 16,062                    |     |
| Intangible assets, net                    | 518,036                                                                                                                                                                     |     | 549,910                   |     |
| Other assets                              | 656                                                                                                                                                                         |     | 580                       |     |
|                                      |                                                                                                                                                                             |     |                           |     |
|                                      | $                                                                                                                                                                           | 784,214  |                      | $        | 815,889 |   |
|                                      |                                                                                                                                                                             |     |                           |     |
|                                      |                                                                                                                                                                        |     |                      |     |
| **LIABILITIES AND STOCKHOLDERS'  EQUITY** |                                                                                                                                                                        |     |                      |     |
| Current liabilities:                      |                                                                                                                                                                        |     |                      |     |
|                                      | Accounts payable                                                                                                                                                            | $        | 6,329                     |     | $ | 8,869 |   |
|                                      | Accrued wages and commissions                                                                                                                                               | 5,668    |                      | 3,965    |   |
|                                      | Accrued liabilities                                                                                                                                                         | 16,008   |                      | 13,523   |   |
|                                      | Income taxes payable                                                                                                                                                        | 3,053    |                      | 1,610    |   |
|                                      |                                                                                                                                                                        |          |                      |          |   |
|                                      | Total current  liabilities                                                                                                                                                  | 31,058   |                      | 27,967   |   |
|                                      | Deferred tax liability                                                                                                                                                      | 29,008   |                      | 27,742   |   |
|                                      |                                                                                                                                                                        |          |                      |          |   |
|                                      | 60,066                                                                                                                                                                      |     | 55,709                    |     |
|                                      |                                                                                                                                                                             |     |                           |     |
| Stockholders' equity:                     |                                                                                                                                                                        |     |                      |     |
|                                      | Preferred stock, 5,000  and 1,000 shares authorized, no shares issued and outstanding as of June 29,  2001, and December 31, 2000, respectively                             | —   |                      | —   |   |
|                                      | Common stock, $0.001  par value; 200,000 shares authorized, 44,532 and 43,820 shares issued and  outstanding as of June 29, 2001 and   December 31, 2000, respectively | 45       |                      | 44       |   |
|                                      | Additional paid-in  capital                                                                                                                                                 | 920,046  |                      | 898,410  |   |
|                                      | Accumulated other  comprehensive loss                                                                                                                                       | (2,429   | )                         | (2,881   | ) |
|                                      | Deferred compensation                                                                                                                                                       | (25,826  | )                         | (32,682  | ) |
|                                      | Retained deficit                                                                                                                                                            | (167,688 | )                         | (102,711 | ) |
|                                      |                                                                                                                                                                        |          |                      |          |   |
|                                      | Total stockholders'  equity                                                                                                                                                 | 724,148  |                      | 760,180  |   |
|                                      |                                                                                                                                                                             |     |                           |     |
|                                      | $                                                                                                                                                                           | 784,214  |                      | $        | 815,889 |   |
|                                      |                                                                                                                                                                             |     |                           |     |
|                                           |                                                                                                                                                                             |          |                           |          |  |  |  |  |  |

Seenotes accompanying these condensed consolidated financial statements.

**AVOCENT CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

(In thousands)

 

|                                                                                      | **For the six months ended**                                  |       |
|-------------------------------------------------------------------------------------------|---------------------------------------------------------------|------------|
|                                                                                      | **June  29,  2001**                                           | ** ** |   | **June  30,  2000** | ** ** |
|                                                                                      | ****                                                          | ****       |   | **** | **** |
|                                                                                      | *(unaudited)*                                                 |       |   | *(unaudited)* | * * |
| Cash flows from operating activities:                                                     |                                                          | * *   |   |   | * * |
| Net income (loss)                                                                         | $                                                             | (64,977    | ) |   | $ | 13,541 |   |
|                                                                                      |                                                               |            |   |  |  |
| Adjustments to reconcile net income (loss) to net cash provided  by operating activities: |                                                          |       |   |   |   |
|                                                                                      | Depreciation                                                  | 2,127      |   |   | 393 |   |
|                                                                                      | Amortization of intangible assets                             | 66,437     |   |   | — |   |
|                                                                                      | Stock-based compensation                                      | 9,608      |   |   | 35 |   |
|                                                                                      | Purchased in-process research and development expenses        | 4,570      |   |   | — |   |
|                                                                                      | Net loss on sale of investments                               | 14         |   |   | — |   |
|                                                                                      | Changes in operating  assets and liabilities:                 |       |   |   |   |   |
|                                                                                      | Accounts receivable, net                                      | 12,557     |   |   | 1,051 |   |
|                                                                                      | Other receivables                                             | 10,800     |   |   | — |   |
|                                                                                      | Inventories, net                                              | 81         |   |   | 3,100 |   |
|                                                                                      | Other assets                                                  | (1,444     | ) |   | 264 |   |
|                                                                                      | Accounts payable                                              | (4,506     | ) |   | (2,504 | ) |
|                                                                                      | Accrued wages and commissions                                 | 848        |   |   | 2,335 |   |
|                                                                                      | Accrued liabilities                                           | 1,263      |   |   | 785 |   |
|                                                                                      | Income taxes, current and deferred                            | (1,351     | ) |   | (1,878 | ) |
|                                                                                      |                                                          |            |  |   |  |  |
|                                                                                      | Total adjustments                                             | 101,004    |   |   | 3,581 |   |
|                                                                                      |                                                          |            |  |   |  |  |
|                                                                                      | Net cash provided by operating activities                     | 36,027     |   |   | 17,122 |   |
|                                                                                      |                                                          |            |  |   |  |  |
|                                                                                      |                                                          | ** ** |   |   | ** ** |
| Cash flows from investing activities:                                                     |                                                          | ** ** |   |   | ** ** |
|                                                                                      | Purchase of Equinox Systems Inc., net of cash and investments | (31,725    | ) |   | — |   |
|                                                                                      | Purchases of property and equipment                           | (2,451     | ) |   | (209 | ) |
|                                                                                      | Purchases of investments                                      | (46,599    | ) |   | (60,613 | ) |
|                                                                                      | Maturities of investments                                     | 31,047     |   |   | 37,093 |   |
|                                                                                      | Proceeds from sales of investments                            | 20,145     |   |   | — |   |
|                                                                                      | Deferred acquisition costs                                    | —     |   |   | (2,554 | ) |
|                                                                                      |                                                          |            |  |   |  |  |
|                                                                                      | Net cash used in investing activities                         | (29,583    | ) |   | (26,283 | ) |
|                                                                                      | ****                                                          | ****       |   | **** | **** |
|                                                                                      |                                                          |       |   |   |   |
| Cash flows from financing activities:                                                     |                                                          | ** ** |   |   | ** ** |
|                                                                                      | Proceeds from issuance of short-term debt                     | 45,000     |   |   | -- |   |
|                                                                                      | Repayment of short-term debt                                  | (45,000    | ) |   | -- |   |
|                                                                                      | Proceeds from employee stock plans                            | 8,305      |   |   | 9,873 |   |
|                                                                                      |                                                          |            |  |   |  |  |
|                                                                                      | Net cash provided by financing activities                     | 8,305      |   |   | 9,873 |   |
|                                                                                      |                                                               |            |   |  |  |
|                                                                                      |                                                          |       |   |   |   |
| Effect of exchange rate changes on cash and cash equivalents                              | (99                                                           | )          |   | -- |   |
|                                                                                      |                                                          |       |   |   |   |
| Net increase in cash and cash equivalents                                                 | 14,650                                                        |       |   | 712 |   |
| Cash and cash equivalents at beginning of period                                          | 44,106                                                        |       |   | 15,786 |   |
|                                                                                      |                                                               |            |   |  |  |
| Cash and cash equivalents at end of period                                                | $                                                             | 58,756     |   |   | $ | 16,498 |   |
|                                                                                      | ****                                                          | ****       |   | **** | **** |
|                                                                                      |                                                          | ** ** |   |   | ** ** |
|                                                                                           |                                                               |            |  |  |  |  |  |  |  |  |

Seenotes accompanying these condensed consolidated financial statements.

**AVOCENTCORPORATIONNOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**(Unaudited, in thousands)

Note 1. Basis of presentation

             Avocent Corporation (“Avocent”)wasformed from the merger of Apex Inc. (“Apex”) and Cybex Computer ProductsCorporation (“Cybex”) on July 1, 2000 when both Apex and Cybex merged withwholly owned subsidiaries of Avocent. The merger has been accounted for as a purchase of Cybex by Apex.  Avocent’s condensed consolidated incomestatement and condensed consolidated statement of cash flows for the three andsix months ended June 30, 2000 include only Apex’s historical results.  Avocent’s condensed consolidated incomestatement and condensed consolidated statement of cash flows for the three andsix months ended June 29, 2001 include the results of Apex, Cybex, and EquinoxSystems Inc. (“Equinox”), which was acquired January 3, 2001.  Avocent’s condensed consolidated balancesheet as of June 29, 2001 includes the consolidated financial position of Apex,Cybex, and Equinox. Avocent’s condensed consolidated balance sheet as ofDecember 31, 2000 includes the consolidated financial position of Apex andCybex. Certain reclassifications have been made to the prior year financialstatements to conform to the current year presentation.

              The accompanying unaudited condensed consolidated financialstatements have been prepared in conformity with generally accepted accountingprinciples and reflect all adjustments consisting of normal recurringadjustments which, in the opinion of management, are necessary for a fairpresentation of the results for the periods shown.  The results of operations for these periods are not necessarilyindicative of the results expected for the full fiscal year or for any futureperiods.  The preparation of financialstatements in conformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from those estimates and assumptions.

             The accompanying unauditedcondensed consolidated financial statements should be read in conjunction withthe audited consolidated financial statements and the related notes containedin our Annual Report on Form 10-K for the year ended December 31, 2000, whichis on file with the Securities and Exchange Commission.

             We report our annual results basedon years ending December 31.   We reportour quarterly results for the first three interim periods based on 13 weekperiods ending on Fridays and for the fourth interim period ending on December31.

             Our financial statements areconsolidated and include the accounts of Avocent and its wholly ownedsubsidiaries.  Significant intercompanytransactions and balances have been eliminated in consolidation.

Note 2. Inventories

             Inventories consisted of thefollowing at:

|            | **June 29,****2001** |   |   | **December 31,****2000** |   |
|-----------------|----------------------|--------|--------|--------------------------|--------|
|            | ****                 |   | ****   |
|            | (unaudited)          |   |   |                     |   |
|            |                 |   |   |                     |   |
| Raw materials   | $                    | 18,664 |   |                     | $      | 10,712 |   |
| Work-in-process | 4,338                |   |   | 7,379                    |   |
| Finished goods  | 14,891               |   |   | 16,367                   |   |
|            |                      |   |        |
|            | $                    | 37,943 |   |                     | $      | 34,458 |   |
|            |                      |   |        |

             Werecorded a non-recurring, before tax benefit, charge of  $11.7 million for excess and obsoleteinventories in the second quarter of 2001. This write-down was made to reduce inventories to replacement value andto levels necessary to support current sales demand.

**             Note 3.Stock options and deferred compensation
             Deferred compensation – We recorded$41,165 of deferred compensation related to Cybex employee stock options at thetime of the merger.  Additionally, werecorded $2,752 of deferred compensation related to the Equinox employee stockoptions at the time of the acquisition. The deferred compensation is being amortized over the vesting period ofthe options for which it was recorded.

             Stock optionexercises – Options to purchase 712 shares of our Common Stock were exercisedduring the six months ended June 29, 2001.

Note 4.Accumulated other comprehensive loss

             We record unrealized gains andlosses on our foreign currency translation adjustments and unrealized holdinggains or losses on our available-for-sale securities as accumulated othercomprehensive income (loss), which is included as a separate component ofstockholders’ equity.  For the six monthsended June 29, 2001, total other comprehensive income amounted to $452.  As of June 29, 2001, total accumulated othercomprehensive loss was ($2,429).

Note 5. Earnings per share
 **For  the three months ended** **For  the six months ended** **June 29,****2001** **June 30,****2000** **June 29,****2001** **June 30,****2000**                 Net income (loss)$(36,855) $7,540  $(64,977) $13,541     Weighted average  shares used in computing basic earnings per share44,307  23,180  44,147  23,076 Dilutive effect of  employee stock options after application of the treasury method—  1,305  —  1,414     Weighted average  shares used in computing diluted earnings per share44,307  24,485  44,147  24,490     
Note 6. Segment Reporting

             Our reportable segments are basedon our method of internal reporting which is disaggregated operationally.  Our three reportable segments, Redmond,Washington, Huntsville, Alabama, and Shannon, Ireland, are evaluated based ongross profit.  Selling, general, andadministrative costs, as well as research and development, interestincome/expense, and provision for taxes, are reported on an entity-wide basisonly.  The Huntsville and Shannonlocations were previously Cybex entities; therefore, the segment reportingpresented below includes only financial data for the three and six months endedJune 29, 2001 for these locations.

             The accounting policies of thesegments are the same as those described in the Summary of SignificantAccounting Policies included in our Annual Report to the extent such policiesaffect the reported segment information. The operational distributions of our revenues and gross margin for our reportable segments for the three andsix months ended June 29, 2001 and June 30, 2000 are as follows:

 

Note 6. Segment Reporting *(continued)*
 **For  the three months ended** **For  the six months ended**  **June 29,****2001** **June 30,****2000** **June 29,****2001** **June 30,****2000**    Net sales:           Redmond$22,734  $36,447 $43,229  $64,691  Huntsville37,887  -- 76,153  --  Shannon11,812  -- 29,782  --  Inter-segment(7,354) -- (10,910) --       $65,079  $36,447 $138,254  $64,691     Gross profit:           Redmond$4,348  $16,799 $12,265  $30,452  Huntsville12,668  -- 32,185  --  Shannon2,023  -- 10,488  --  Inter-segment32  -- (33) --       $19,071  $16,799 $54,905  $30,452      
Theoperational distribution of our identifiable assets as of June 29, 2001 andDecember 31, 2000 is as follows:
 **June 29,****2001**  **December   31,****2000**  ****  **** Assets:(unaudited)     Redmond$141,002  $161,545  Huntsville637,593  646,752  Shannon30,088  33,594      Total identifiable  assets808,683  841,891 Eliminations(24,469) (26,002)   Total assets$784,214  $815,889    
Note 7.  Acquisition of Equinox Systems Inc. 

             On January 3, 2001, we acquired EquinoxSystems Inc. for cash equal to $9.75 for each outstanding share of Equinoxcapital stock. Equinox, headquartered in Sunrise, Florida, makes products thatprovide communications port management and remote control capabilities. Theproducts are distributed through a two-tier distribution channel, a network ofvalue added resellers and original equipment manufacturers. 

             The acquisition was recorded underthe purchase method of accounting, and the purchase price was allocated basedon the fair value of the assets acquired and liabilities assumed. In accordancewith generally accepted accounting principles, costs allocated to research anddevelopment assets with alternative future uses were capitalized and theremaining amounts of purchased in-process research and development wereexpensed upon the closing of the transaction. A summary of the total purchaseconsideration is as follows:
Cash paid for outstanding shares$55,607 Outstanding options10,579 Assumed liabilities and acquisition costs4,456    Total purchase consideration$70,642    
The purchaseconsideration was allocated to the estimated fair values of the assets acquiredand liabilities assumed, as follows:Note 7.   Acquisition of Equinox SystemsInc., *(continued)* **Purchase  Price****Allocation** **Amortization****Life**    Tangible asset$38,981 — Patents and trademarks1,680 7  years In–process research and development4,570 — Developed technology6,250 5  years Assembled workforce1,800 3  years Customer base and certification2,500 3  – 6 years Deferred tax liability on intangible assets acquired(5,962)— Goodwill20,823 5  years      Total purchase price allocation$70,642        
             Theacquisition was funded through available cash and the issuance of short-term debt.  We borrowed a total of $45,000 at the statedrate of 30-day LIBOR plus 1.75% (8.31% at January 31, 2001).  All borrowings were repaid during thequarter ended March 30, 2001.  On theclosing of the Equinox transaction, we acquired $24,295 in cash and short–terminvestments held by Equinox.

             **Pro FormaFinancial Information**—Thefollowing unaudited pro forma summary combines the results of operations ofApex and Cybex as if the merger had occurred on January 1, 2000 andincludes the results of operations of Equinox as if the acquisition hadoccurred on January 1, 2000. Certain adjustments have been made to reflect theimpact of the purchase transaction. These pro forma results have been preparedfor comparative purposes only and do not purport to be indicative of what wouldhave occurred had the acquisition been made at the beginning of the respectiveyears, or of results which may occur in the future. 
**Six Months Ended**  **(Unaudited)**  ****  **June 29,****2001**  **June 30,****2000**   Net sales$138,254  $143,381 Net loss$(51,040) $(157,826)Loss per share$(1.16) $(3.72)
Note8. Recently Issued Accounting Standards 

             In June 1999, the FinancialAccounting Standards Board issued SFAS No. 137, (subsequently amended bySFAS No. 138) *Accounting for DerivativeInstruments and Hedging Activities Deferral of the Effective Date of SFASNo. 133*, which deferred the effective date provisions of SFASNo. 133 for us until the first quarter of 2001. These statements requireall derivatives to be measured at fair value and recognized as either assets orliabilities on the balance sheet. Changes in such fair value are required to berecognized immediately in net income (loss) to the extent the derivatives arenot effective as hedges. The impact of SFAS No. 133 on the financialstatements was not material. 

             The Company uses forward contractsto reduce its foreign currency exposure related to the net cash flows from itsEuropean operations. The majority of these contracts are short-term contracts(three months or less) and are marked-to-market each quarter and included intrade payables, with the offsetting gain or loss included in other revenues inthe accompanying statements of operations. At June 29, 2001, we had three openforward contracts, all maturing in the third quarter of 2001, to purchase$1,600 in foreign currency. The fair value of the contracts at June 29, 2001was approximately $1,600.  Note 8. Recently Issued AccountingStandards  (*continued*)
             InJune 2001, the Financial Accounting Standards Board issued SFASNo. 141,*Business Combinations*,which has an effective date of June 30, 2001 for all business combinationsinitiated after this date.  Thisstatement supersedes APB Opinion No. 16, *BusinessCombinations*, and FASB Statement No. 38, *Accounting for Preacquisition Contingencies of Purchased Enterprises*.  This statement requires all businesscombinations within the scope of the Statement to be accounted for using thepurchase method of accounting.  Forbusiness combinations completed prior to June 30, 2001, the statement requirescompanies to recognize intangible assets apart from goodwill and expand thedisclosures about assets acquired and liabilities assumed.  The impact of SFAS No. 141 on the financialstatements is not expected to be material. 

             In June 2001, the FinancialAccounting Standards Board issued SFAS No. 142, *Goodwill and Other Intangible Assets*, which has an effectivedate starting with fiscal years beginning after December 15, 2001.  This Statement supersedes APB Opinion No.17, *Intangible Assets*.  This Statement addresses how intangibleassets that are acquired individually or with a group of other assets should beaccounted for in financial statements upon their acquisition.  This Statement also addresses how goodwilland other intangible assets should be accounted for after they have beeninitially recognized in the financial statements.  Goodwill will cease to be amortized upon the implementation ofthe Statement and companies will test goodwill at least annually forimpairment.   The impact of SFAS No. 142on the financial statements may be material.

Note 9. PatentDispute

             InFebruary 1998, Apex Inc., a wholly-owned subsidiary of Avocent, filed patentinfringement lawsuits against certain companies (including Rose Electronics),which were dismissed without prejudice by the agreement of the parties in early1999 to allow certain patent issues raised in the litigation to be initiallydetermined by the United States Patent and Trademark Office (the "PTO").  Apex also filed a complaint for patentinfringement in United States District Court for the Western District ofWashington in Seattle against CCC Group in June 1998, which was filed but neverformally served on CCC. This lawsuit was stayed by the District Court in 1999pending a ruling by the PTO, and subsequently, Apex voluntarily dismissed theCCC lawsuit in Seattle without prejudice.

             Theissues raised in the PTO have now been resolved in Apex’s favor, and in May2001, Apex filed a complaint for patent infringement in the United StatesDistrict Court for the Southern District of New York against Raritan ComputerInc.  The Raritan complaint seeksinjunctive relief, damages, attorneys' fees and costs.  Apex has also informed both Rose Electronicsand CCC Group that Apex continues to believe that certain products sold bythese companies infringe one or more of Apex's patents and that, absentcircumstances requiring earlier action, Apex intends to enforce its patentrights against Rose and CCC when the Raritan litigation is concluded.
 Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.

 *THE INFORMATION IN THIS ITEM 2 - "MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"CONTAINS FORWARD-LOOKING STATEMENTS, INCLUDING, WITHOUT LIMITA­TION, STATEMENTSRELATING TO OUR REVENUES, EXPENSES, MARGINS, LIQUID­ITY,  NON-RECURRING CHARGES, INVENTORY, INVENTORYVALUATION AND WRITE-DOWNS, CAPITAL NEEDS, MERGER ACCOUNTING, ACQUISITION ANDTRANSACTION COSTS AND ADJUSTMENTS INCLUDING, AMONG OTHER THINGS, WRITE OFF OFIN-PROCESS RESEARCH AND DEVELOPMENT COSTS AND AMORTIZATION OF INTANGIBLEASSETS.  THESE FORWARD-LOOKINGSTATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSEACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THEFORWARD-LOOKING STATEMENTS.  FACTORSTHAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSEDISCUSSED IN OUR ANNUAL REPORT ON FORM 10-K, WHICH WAS FILED WITH THESECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2001.*

 **Formation of Avocent by Mergerof Apex and Cybex**

             InMarch 2000, Apex and Cybex entered into a definitive agreement under whichthey agreed to combine the two companies in a merger resulting in a newcompany, Avocent Corporation (formerly known as Aegean Sea Inc.). OnMarch 31, 2000, Avocent filed a registration statement on Form S-4,which was declared effective by the Securities and Exchange Commission onJune 2, 2000. Apex and Cybex received final approval of the merger bytheir respective shareholders on June 30, 2000. The merger was effectiveas of July 1, 2000. Prior to the effective date of the merger, Avocent didnot conduct any activities. Avocent is on a calendar year basis withDecember 31 as its year-end.

             The merger has been accounted for asa purchase of Cybex by Apex in accordance with Accounting Principles BoardOpinion No. 16, with the purchase price allocated to the assets andliabilities of Cybex based upon their fair values on the date of the transaction.The excess of the purchase price over the fair value of the assets andliabilities has been allocated to the identifiable intangible assets andgoodwill. Additionally, $94 million of the purchase price was expensed asin-process research and development upon the completion of the merger. Thepurchase price allocation was as follows: $109 million of tangible assets,$90 million of identifiable intangible assets, $34 million ofdeferred tax liability on intangible assets acquired, $524 million ofgoodwill, $94 million of in-process research and development, and$29 million of assumed liabilities and acquisition costs. The amortizationperiods are 3 to 7 years for identifiable intangibles and 5 years forgoodwill. 

             Avocent’scondensed consolidated income statement and condensed consolidated statement ofcash flows for the three and six months ended June 30, 2000 include only Apex’shistorical results.  Avocent’s condensedconsolidated income statement and condensed consolidated statement of cashflows for the three and six months ended June 29, 2001, include the results ofApex, Cybex, and Equinox, acquired January 3, 2001.  Avocent’s condensed consolidated balance sheet as of June 29,2001 includes the consolidated financial position of Apex, Cybex, and Equinox.Avocent’s condensed consolidated balance sheet as of December 31, 2000 includesthe consolidated financial position of Apex and Cybex.  Certainreclassifications have been made to the prior year financial statements toconform to the current year presentation.

 **Apex and Cybex History**

             Apexoperated as a division of Apex Computer Company through January 1993,providing computer maintenance services to Microsoft and selling integratedserver cabinets and, to a limited extent, stand–alone switching systems,primarily to Microsoft. In February 1993, the assets of that division werespun off as a dividend to the sole shareholder of Apex Computer Company, whocontributed those assets as Apex's initial capital. Throughout 1993, Apexderived revenue primarily from the provision of computer maintenance servicesto Microsoft. In May 1994, Apex began selling stand–alone switchingsystems to Compaq for integration into server cabinets. In June 1994, Apexdiscontinued its computer maintenance service business and decided toconcentrate on sales of stand– alone switching products.             Cybex engaged in thedevelopment of software and performed engineering consulting from 1981 to 1984to finance its research and development efforts for computer–relatedproducts. In 1986, Cybex shipped its first computer–related hardwareproduct. In 1987, Cybex shipped its first product that allowed the computer tobe extended distances from the keyboard, monitor, and mouse. Subsequently in1989, Cybex shipped its first stand–alone switching system. Through theeffective date of the merger, Cybex derived primarily all of its revenues fromswitching, extension, and remote access products. 
**Overview**         

We design, manufacture, and sell console switchingsystems, digital connectivity solutions, serial connectivity devices, andextension and remote access products for the computer industry. Data centermanagers and network administrators have increasingly complex and growingserver populations.  Our analog, digital,and serial switching solutions and our extension and remote access productshelp network administrators manage multiple servers from a console containing asingle keyboard, video monitor, and mouse, from extended distances or fromremote locations. Specifically, our products can provide significant costreductions including lower initial investment, reduced utility costs, and spacesavings, as well as more efficient technical support capabilities.

             Weprovide comprehensive "plug and play" switching systems for manynetwork administration, management, and storage problems faced by corporatecustomers, data centers, and server farms. Our switching solutions includeproducts sold under the Avocent, Apex, Cybex, and Equinox brands including our *AutoViewTM, DS1800TM, OutLook®, ViewPoint®,* and *XP®4000 Series* products. Ourswitching products help facilities managers and network administrators accessmultiple servers from one or more centralized or remote consoles, consolidatehardware requirements, and provide direct hardwired connections between theswitch and the attached servers to facilitate access to those servers, evenwhen the network is down.

             Asubstantial portion of our revenue is derived from sales to a limited number oforiginal equipment server manufacturers, or OEMs, who purchase our switchingsystems on a private–label or branded basis for integration and sale withthe their own products, sales through our reseller and distributor network, andsales to a limited amount of direct customers. We do not have contracts with many of these customers, and in general,they are obligated to purchase products from us only pursuant to bindingpurchase orders.  For the six months ended June 29, 2001, sales to our OEMcustomers, our reseller and distributor network, and our direct sales wereapproximately 41%, 54% and 5%, respectively, of our net sales.

             Withrecent industry-wide initiatives to reduce all channel inventories and toshorten lead times, trends with our major customers are, generally, to reduce thenumber of weeks of forward–committed firm orders. This factor iscurrently affecting our business with certain OEMs and other servermanufacturers, and we believe that it will continue to make our sales moredifficult to predict and inventory levels more difficult to manage.

             We are currently experiencingincreased price competition in the market for all of our products, and weexpect that pricing pressures will continue to increase in the future. 

             Our executive officers have vestedin significant amounts of options to purchase shares of our Common Stock andcontinue to vest in additional shares on a regular (sometimes monthly)basis.  These officers have informed usthat they have sold and may sell additional shares of our Common Stock on aregular basis to provide liquidity and diversify their portfolios.

 **Acquisition of Equinox**

             OnJanuary 3, 2001, we acquired Equinox Systems Inc. (“Equinox”) forcash equal to $9.75 for each outstanding share of Equinox capital stock.Equinox, headquartered in Sunrise, Florida, makes products that providecommunications port management and remote control capabilities. The productsare distributed through a two-tier distribution channel, a network of valueadded resellers and original equipment manufacturers.             The acquisition was recordedunder the purchase method of accounting, and the purchase price was allocatedbased on the fair value of the assets acquired and liabilities assumed. Inaccordance with generally accepted accounting principles, costs allocated to researchand development assets with alternative future uses were capitalized and theremaining amounts of purchased in-process research and development wereexpensed upon the closing of the transaction. The purchase price allocation wasas follows: $39.0 million of tangible assets, $12.2 million ofidentifiable intangible assets, $6.0 million of deferred tax liability onintangible assets acquired, $20.8 million of goodwill, and$4.6 million of in-process research and development. The amortizationperiods are 3 to 7 years for identifiable intangibles and 5 years forgoodwill.
 **Results of Operations**

             Thefollowing table sets forth, for the periods indicated, selected statement ofoperations data expressed as a percentage of net sales: 
         **Three Months Ended** **Six Months Ended**  **** ****  **June 29,  2001** **June 30,  2000** **June 29,  2001** **June 30,  2000**  **** **** **** ****          Net sales100.0%100.0%100.0%100.0% Cost of sales70.7 53.9 60.3 52.9        Gross profit29.3 46.1 39.7 47.1 Operating expenses:        Research and development expenses9.3 4.6 8.5 4.8 In–process research and development expenses and  other acquisition costs— — 3.3 — Selling, general and administrative expenses31.7 13.1 29.1 13.7 Amortization of intangible assets51.2 — 48.0 —       Total operating expenses92.2 17.7 88.9 18.5       Income (loss) from operations(62.9)28.4 (49.2)28.6 Other income, net2.3 2.9 2.0 3.1       Income (loss) before income taxes(60.6)31.3 (47.2)31.7 Provision for (benefit from) income taxes(4.0)10.6 (0.2)10.8       Net income (loss)(56.6%)20.7%(47.0%)20.9%     
             *Net sales.*  Our net sales consist of sales of switchingsystems, digital connectivity solutions, serial connectivity devices, extensionand remote-access products, and display products.  Net sales increased 79% to $65.1 million for the second quarterof 2001 from $36.4 million for the second quarter of 2000.  This increase was due primarily to the impactof the merger of Apex and Cybex on July 1, 2000.  Additionally, revenues from Equinox product sales, acquired onJanuary 3, 2001, contributed over $4 million to the increase in net sales. Salesacross our operational segments for the quarter were $32.6 million inHuntsville, $20.9 million in Redmond, and $11.6 million in Shannon.  The allocation of sales across thesesegments is expected to fluctuate as we shift sales from our Redmond facilityto our Shannon facility to take advantage of our 10% corporate tax rate inShannon. Additionally, all revenues from the Sunrise location are grouped withour Huntsville segment since shipping of Equinox branded products was shiftedto the Huntsville location during the second quarter of 2001.  Net salesincreased 114% to $138.3 million for the first six months of 2001 from $64.7million for the first six months of 2000. This increase was due primarily to the impact of the merger of Apex andCybex on July 1, 2000, as well as from Equinox product sales during 2001. Salesacross our operational segments for the first six months of 2001 were $69.7million in Huntsville, $39.1 million in Redmond, and $29.5 million in Shannon. 

             *Gross profit.* Gross profit is affected by a variety of factors, including: the ratio ofsales among our distribution channels, resellers and distributors, OEMs, anddirect sales, as OEM sales typically have lower gross margins than our resellerand distributor sales and directs sales; product mix, raw materials and laborcosts; new product introductions by us and by our competitors; and the level ofour outsourcing of manufacturing and assembly services.  Gross margins were significantly affected bya $11.7 million write-down for excess and obsolete inventories in the secondquarter of 2001.  This write-down wasmade to reduce inventory valuations to bring them in-line with currentreplacement values and to the level necessary to support current sales demand.  In addition, severance charges of over $50thousand were incurred during the second quarter of 2001 related to headcountreductions made in the U.S. and Europe. Charges of approximately $700 thousand in deferred compensationamortization related to stock options for manufacturing employees were also recognizedduring the quarter as a result of the merger of Apex and Cybex and theacquisition of Equinox.   Gross profitdecreased to 29.3% in the second quarter of 2001 from 46.1% in the secondquarter of 2000 due to the factors discussed above.   Gross margin for the year decreased to 39.7% for the first sixmonths of 2001 from 47.1% for the first six months of 2000 also as a result ofthe factors discussed above.

 

             *Research and development expenses.*  Research and development expenses includecompensation for engineers and materials costs and are expensed as they areincurred.  Research and developmentexpenses were$6.0 million, or 9.3% of net sales,in the second quarter of 2001 compared to $1.7 million, or 4.6% of net sales,for the second quarter of 2000.  Thelarge increase in the amount spent on research and development can beattributed to the impact of the merger effective July 1, 2000 and theacquisition of Equinox, effective January 3, 2001.  The additional costs of the Cybex and Equinox research anddevelopment teams include approximately $1.2million in deferred compensation amortization for certain engineering employeesrecognized as a result of the merger and acquisition.  Year-to-date research and development expenses for 2001 increasedto $11.7 from $3.1 million year-to-date in 2000 for the reasons listedabove.  As a percentage of net sales,year-to-date research and development expenses increased to 8.5% from4.8%.  We believe that the timelydevelopment of innovative products and enhancements to existing products isessential to maintaining our competitive position and we expect research anddevelopment expenditures to increase in absolute dollars and possibly as apercentage of net sales.

             *In-processresearch and development expense.*The in-process research anddevelopment expense of $4.6 million in the first quarter of 2001 is comprisedsolely of the acquisition costs of Equinox attributable to in-processtechnologies.  The charge for Equinoxin-process technologies is non-recurring. 

             *Selling, general and administrative expenses.*  Selling, general and administrative expensesinclude some merger related expenses, severance costs, personnel costs foradministration, finance, human resources, sales and marketing and generalmanagement, as well as rent, utilities and legal and accounting expenses,advertising, promotional material, trade show expenses and related travelcosts.  Selling, general andadministrative expenses were $20.6 million, or 31.7% of net sales, for thesecond quarter of 2001 compared to $4.8 million, or 13.1% of net sales, for thesecond quarter of 2000.   Selling,general and administrative expenses in the second quarter of 2001 include $3.3million of deferred compensation amortization expense related to stock optionsand $1.3 million of severance costs related to headcount reductions in the U.S.and Europe.  The increase in selling,general and administrative expenses in absolute dollars and as a percentage ofsales was due primarily to the addition of Cybex and Equinox expenses as aresult of the merger between Apex and Cybex on July 1, 2000, and theacquisition of Equinox on January 3, 2001. Year-to-date selling, general, and administrative expenses increased to$40.3 million, or  29.1% of net salesfor 2001 from $8.8 million, or 13.7% of year-to-date net sales in 2000, due tothe same reasons noted for the second quarter.   We expect selling, general and administrative expenditures, indollars, to decline in the third and fourth quarters of 2001 as a result of theheadcount reductions and other cost control efforts taken.

             *Amortization of intangible assets.*  Amortization of intangible assets iscomprised of the amortization of the amounts allocated to the identifiableintangible assets and goodwill that were in excess of the purchase price overthe fair value of the Cybex assets and liabilities acquired by Apex in themerger transaction. Also included is the amortization of similar assets createdas a result of the acquisition of Equinox. The amortization periods are 3 to 7 years for intangibles and5 years for goodwill. Amortization of identifiable intangible assets andgoodwill was $33.4 million or 51.2% of net sales for the second quarter of2001 and $66.4 million or 48.0% of net sales for year-to-date 2001.

              *Other income, net.* Other income was $1.5 million for the second quarter of 2001, upfrom $1.1 million for the second quarter of 2000. The increase relatedprimarily to interest income from increased cash and investments.  The increase in cash and investments was providedby the addition of the Cybex cash, cash equivalents, and investments as aresult of the merger effective July 1, 2000, the addition of the Equinoxcash, cash equivalents, and investments as a result of the acquisitioneffective January 3, 2001, and the cash from our operations in 2000 and in thefirst six months of 2001. For the year, other income increased to $2.8 millionfor 2001, from $2.0 million for 2000, for the same reasons.

             *Net income (loss).*  Our net loss for the second quarter of 2001 was$36.9 million compared to net income of $7.5 million for the secondquarter of 2000, as a result of the above factors. Net loss as a percentage ofsales for the second quarter of 2001 was 56.6%, compared to net income as apercentage of sales for the second quarter of 2000 of 20.7%.   Our net loss for the first six months of2001 was $65.0 million compared to net income of $13.5 million forthe first six months of 2000, as a result of the above factors. Net loss as apercentage of sales for the first six months of 2001 was 47.0%, compared to netincome as a percentage of sales for the first six months of 2000 of 20.9%.

 

 **Liquidityand Capital Resources**

             As of June 29, 2001, our principalsources of liquidity consisted of approximately $136 millionin cash, cash equivalents, and investments. In addition, we have a bank line ofcredit for borrowings of  $2.0 millionat LIBOR + 2.25% with a maturity date of September 2001.  There were no amounts outstanding under thiscredit facility at June 29, 2001.  Inearly January 2001, we borrowed atotal of $45 million at the stated rate of 30-day LIBOR plus 1.75% (8.31% atJanuary 31, 2001) to temporarily finance our acquisition of Equinox,pending maturity of certain short-term investments.   All borrowings were repaid during the first three months of2001. On the closing of the Equinox transaction, we acquired approximately$24.3 million in cash and short-term investments held by Equinox. 

             Our operating activities generated cash of approximately$36 million in the first six months of 2001, compared to approximately $17million in the first six months of 2000.  After adjusting the net loss for merger and acquisition related items,the large increase in cash flow from operations for the first six months of2001 compared to the first six months of 2000 resulted primarily from thechange in accounts receivable and other receivables. The decrease in receivables from December 31, 2000 is aresult of the timing of sales and our collection efforts.

             Inventory levels increased in thefirst quarter of 2001 due to thepurchase of long-lead items and transfer of completed subassemblies from avendor for our DS1800 product. During the fourth quarter of 2000, we sold alarge amount of our DS1800 components to a subcontractor to produce DS1800subassemblies.   The value of thesecomponents was carried as other receivables at year-end and the value wastransferred back to inventory from other receivables upon the receipt of thesubassemblies.  The large increase ininventory during the first quarter of 2001 was largely offset by anon-recurring, before tax benefit, charge of $11.7 million for excess and obsolete inventories recorded in the secondquarter of 2001.  This write-down wasmade to reduce inventories to replacement value and to levels necessary tosupport current sales demand.

             We believe that our existing cashbalances, investments, cash generated from operations and the funds availableto us under credit facilities will be sufficient to fund our operations through2001.
**Item 3.****Quantitative and Qualitative Disclosures About Market Risks.**

             Our primary market risk is thepotential loss arising from changes in interest rates, which could have anadverse impact on the fair value of our investment securities. Our investmentpolicy is to manage our investment portfolio to preserve principal andliquidity while maximizing the return on the investment portfolio through theinvestment of available funds. We diversify the investment portfolio byinvesting in a variety of highly–rated investment–grade securitiesand through the use of different investment managers. Our investment securitiesportfolio is primarily invested in short-term securities with at least aninvestment grade rating to minimize interest rate and credit risk as well as toprovide for an immediate source of funds. Market risk is estimated as thepotential change in fair value in the investment portfolio resulting from ahypothetical 10 percent change in interest rates, and was not material atJune 29, 2001. We generally hold investment securities until maturity and carrythe securities at amortized cost, which approximates fair value.

             We are also exposed to equity pricerisks on our investments in publicly traded equity securities. Theseinvestments are generally in companies having operations or technology in areaswithin our strategic focus. We do not attempt to reduce or eliminate our marketexposure on these securities. As of June 29, 2001, the fair value of ouravailable–for–sale equity investments was $1.6 million. A 20percent adverse change in equity prices would result in a decrease ofapproximately $314 thousand in the fair value of our available–for–saleequity securities as of June 29, 2001.              

             The value of certain foreigncurrencies versus the U.S. dollar affects our financial results. Ourinternational operations transact a portion of our business in currencies otherthan the U.S. Dollar, and changes in exchange rates may positively ornegatively affect our revenues, gross margins, operating expenses, and retainedearnings since these transactions are expressed in U.S. dollars. We engage insome hedging programs aimed at limiting the impact of currency fluctuations.These hedging activities provide only limited protection against currencyexchange risks, and there can be no assurance that such an approach will besuccessful, especially if a significant and sudden decline occurs in the valueof local currencies.   
 **PART II – OTHER INFORMATION**

**Item 1.**  **Legal Proceedings.**

             In February 1998, Apex Inc., awholly-owned subsidiary of Avocent, filed patent infringement lawsuits againstcertain companies (including Rose Electronics), which were dismissed withoutprejudice by the agreement of the parties in early 1999 to allow certain patentissues raised in the litigation to be initially determined by the United StatesPatent and Trademark Office (the "PTO").  Apex also filed a complaint for patent infringement in UnitedStates District Court for the Western District of Washington in Seattle againstCCC Group in June 1998, which was filed but never formally served on CCC. Thislawsuit was stayed by the District Court in 1999 pending a ruling by the PTO,and subsequently, Apex voluntarily dismissed the CCC lawsuit in Seattle withoutprejudice.

             The issues raised in the PTO havenow been resolved in Apex’s favor, and in May 2001, Apex filed a complaint forpatent infringement in the United States District Court for the SouthernDistrict of New York against Raritan Computer Inc.  The Raritan complaint seeks injunctive relief, damages,attorneys' fees and costs.  Apex hasalso informed both Rose Electronics and CCC Group that Apex continues tobelieve that certain products sold by these companies infringe one or more ofApex's patents and that, absent circumstances requiring earlier action, Apexintends to enforce its patent rights against Rose and CCC when the Raritanlitigation is concluded.

 **Item 4. Submission of Matters to a Vote of Security Holders.**

             OnJune 14, 2001, we held our Annual Meeting of Shareholders.  The matters voted on at the meeting and theresults of these votes are as follows: 

             1.          Election of Class I Board ofDirectors. 
 Votes for Votes Withheld   1.  William H. McAleer39,631,591 252,635 2.  David P. Vieau39,622,964 261,262 3.  Doyle C. Weeks39,644,227 239,999
             2.          Ratifyappointment of  PricewaterhouseCoopersLLP as independent auditors for fiscal year ending December 31, 2001. 
Votes For Votes Against Votes Abstained  39,702,861 177,245 4,120
**Item 6.  Exhibits andReports on Form 8-K.**
(a)Exhibits(b)Reports on Form 8-K
                           Wefiled a current Report on Form 8-K on January 18, 2001 in connection with ouracquisition of Equinox Systems Inc., a Florida corporation.  TheAcquisition was consummated on January 3, 2001, prior to which the shareholdersof Equinox duly approved the Acquisition in accordance with the corporate lawsof the State of Florida.  

ITEMS2, 3 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED. 
**SIGNATURES**

                           Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized. 

 
   AVOCENT CORPORATION.         (Registrant)      Date: August 13, 2001 /s/ Douglas E.  Pritchett        Douglas E. Pritchett     Senior Vice President  of Finance, Chief Financial Officer and Treasurer (Principal Financial  Officer)      
 **